Fireman’s Fund Insurance Ravaged by Allianz Bureaucracy

Once again bureaucracy is shown to be the most efficient way to snatch defeat from the jaws of victory.

A German newspaper recently reported that insurance giant Allianz, owner of California based Fireman’s Fund Insurance Company (FFIC), is planning to dismantle the company and sweep it into the dustbin of bureaucratic failures. Allianz has tacitly confirmed the report but only complaining that the planned action became public before intended by the company. As with any bureaucratic failure, the hope of those responsible is that no one will notice.

The newspaper (Sueddeutsche Zeitung) article revealed that Fireman’s Fund commercial business is to be folded into another German industrial insurance company owned by Allianz, while the “personal lines business” of FFIC will be allowed to “runoff” until it is gone or offered to another company interested in scavenging the the tattered remnants of the deceased company.

This is a sad and totally unnecessary ending for Fireman’s Fund; a valued, 150-year-old company that had survived the 1906 San Francisco earthquake, but could not withstand the upheaval heaped on it by the bureaucratic management minions of Allianz who virtually squandered the $3.3 billion in cash Allianz paid to acquire Fireman’s Fund in 1991.

Good Idea Soiled by Bureaucracy

When Allianz purchased Fireman’s Fund the transaction seemed (and was) a sound strategic move that would provide Allianz – the largest casualty insurer in Europe – with an entrance into the American market that it had heretofore desired but lacked. For Fireman’s Fund the affiliation with Allianz promised to offer the resources, credibility, expertise and capital of one of the world’s largest insurance companies; providing it with the capability to become a substantial player in the American market. But the relationship was star-crossed from the beginning.

The timeline of activity and actions following the Allianz acquisition of FFIC offers the mother of all examples of how a bureaucracy-riddled company can ravage the value of any investment and kill the opportunity to leverage it to success. In the interests of transparency, I both worked for Allianz as the CEO of a company (LifeUSA) it acquired in 1999 and served on the board of directors of Fireman’s Fund; so I had a front row seat to observe (and experience) how a bureaucratic company functions. In fairness, the vast majority of those I dealt with at Allianz in Germany were extremely intelligent, highly ethical and well-intended; it’s just that they were raised to be bureaucrats and excelled at practicing that art. Even more revealing to me was that the most senior executives of Allianz – especially the CEO – recognized and were frustrated by the inadequacies of a bureaucratic culture, but felt powerless to change it.

The conundrum is that when bureaucracy ridden companies – such as Allianz – are able to scrunch up the courage to make a strategic decision such as an acquisition, they immediately retreat into a bunker mentality, trying to protect their investment, rather than leverage it. Bureaucrats are dedicated to analysis, but terrified by action.

Bureaucratic companies seem incapable of understanding that an investment to acquire a company is the start of the process, not the ending. The clear message given to those leading the acquired company is, “Okay, we took the risk of putting up the money to buy the company, now it is your job to grow the company, but we are not going to risk any more capital to help make that happen.”

This mentality triggers a chain of events that invariably emasculates the culture of the acquired company, leading to the diminution of the initial investment, if not the outright destruction of the company. This inevitable process starts when the bureaucrats of the parent company, begin to impose their stifling bureaucratic rules and controls on the acquired company; limiting the actions and strategies that made it an attractive acquisition. The suffocation of the entrepreneurial culture of the acquired company soon begins to trigger the departure of those individuals capable of creating the desired growth. This leads to a string of increasingly less capable executives charged with running the acquired company. These executives are hired, not for their creativity and independence, but rather for their acquiescence of and compliance with the bureaucratic culture.

It is noteworthy that in the past nine years alone, Fireman’s Fund has had seven different CEOs; all hired and fired by the Allianz bureaucracy. (Believe it or not, one of these CEOs, in the midst of downsizing the company and laying-off hundreds of employees, purchased a Rolls-Royce and parked it at the company for all employees to see.) In the end, the acquired company is populated by managers with the same attitude, aptitude and recalcitrance to action as the bureaucrats who hired them. And then the executives of the parent company wonder why the company fails!

Fireman’s Fund also serves as a classic casebook example of how a bureaucratic culture will send good money chasing after bad money. To comprehend this process it is critical to understand that a bureaucrat will do almost anything to avoid acknowledging and accepting responsibility for failure. As failure looms the bureaucrat will become more and more frantic and irrational in their actions to hide the failure.

Despite investing $3.2 billion to acquire Fireman’s Fund as an entrance into the American casualty insurance market, Allianz was unwilling to allocate the additional capital necessary to bring FFIC up to the competitive levels of the other players in the market. Pressed for growth, but lacking the necessary capital and falling deeper and deeper into the catacombs of the Allianz bureaucracy, Fireman’s Fund was forced to take risks that became gambles, that turned into losses. As the losses at FFIC mounted the bureaucrats at Allianz had the choice of acknowledging the failure of its initial investment or to hide the fact by pouring in additional funds to keep the company afloat. Soon good money was chasing bad money in a bureaucratic effort to avoid the inevitable. But this money was only intended to cover past mistakes, not invest in the future. As such it only accelerated the downward spiral that ultimately destroyed both Allianz’s investment and Fireman’s Fund.

Over a decade ago Allianz executives internally acknowledged that the investment in Fireman’s Fund was a failure and sought to sell the company. Unfortunately, the bureaucrat culture at Allianz had already triggered a decline at FFIC that made the company unmarketable—at least at a price anywhere near what Allianz initially paid. Not wanting to publicly admit failure, the Allianz bureaucrats hung on, but in so doing they took actions that made the situation even worse. Allianz not only refused to invest the capital necessary to build up the capabilities and competitiveness of FFIC, they began to suck as much money as possible out of the company. (One year Allianz required FFIC to pay a dividend of $1 billion dollars to the parent company.) Having reached the conclusion that it would not be possible to sell Fireman’s Fund without exposing the failure of Allianz management and the loss of the company’s investment, it was decided to let the company “bleed-out” and die. What we are witnessing now are the attempts of Allianz bureaucrats to dispose of the decaying body.

And The Moral of the Story …

Don’t let your kids grow up to be bureaucrats! If success is what you seek, then you must do anything and everything to keep bureaucracy at bay in your company. Recognize bureaucracy as the Ebola virus of management that ultimately destroys all it infects.

The comments expressed here are not an attack on Allianz, but on bureaucracy. Allianz is one of the largest companies in the world, but it is also the epitome of a bureaucratic culture. Just imagine how much more successful Allianz could be and how effective Fireman’s Fund could have been as an entrance into the American market, had it not been for the ravages of bureaucracy. Instead, the investment has been wasted, Allianz is still not in the American casualty insurance market and Fireman’s Fund is dead. It is a lesson anyone in any company needs to learn and remember.

So it takes Allianz 23 years to finally figure out that FFIC was a bad fit? I worked at FFIC’s office in St. Louis for 4 years and saw firsthand how FFIC took the risks that were mentioned above..Going into markets that they had no clear understanding on how it works, and when they did, the losses clearly affected the bottom line. No one at FFIC can blame the employees for the so called “performance issues” when a majority of them saw the proverbial handwriting on the wall. I’m glad that I am no longer with FFIC, but at the same time I worry about the 300 plus employees that are still working in St. Louis and what they are going through. No agent will place business with FFIC now that word has gotten out last month of Allianz’s putting up the FFIC personal lines side of the company.

Thank you. Great insight into the german bureaucratic mindset. I think the Personal Lines division will be an attractive asset with it’s focus on the high net worth market and expertise. As for Allianz….gut riddance.

I think much of the article is correct, but I also think substantial blame goes to FFIC’s own bureaucracy and in particular, the cronyism that was pervasive throughout the last 12yrs which placed totally unqualified individuals into management positions in which they made no decisions w/o approval from above, so inaction became the rule, along with self preservation. The sad part is that the same thing still exists, just look at the posts on Glassdoor, and will likely continue once AZGS absorbs the commercial lines and retains the same mgmt.

Having worked for FFIC in the 70’s when it belonged to American Express and returned in the 90’s, the upper level stagnation and pitiful incompetence during my second tour were saddening. The morale in my branch was low and there were dysfunctional personalities, bullying, and witch hunting. Such a change from when American Express owned it. Yes there were problems then too, but nothing to equal those under Allianz.

all those terrific grants to local fire stations were such a great thing. What a shame. Back in the early 90’s the top cos to join as a mgmt trainee were FFIC, Safeco, Kemper and Chubb. Chubb is the sole survivor there, yeah? This was a total BLITZKRIEG upon an American institution now in the garbage with the likes of other cos started in 100 yrs or so ago such as Reliance, Safeco, St. Paul, Kemper, Home, USF&G & Royal.

Having worked for FF for 27 years I felt it was doomed before Allianz by its own strategic mismanagement. As a high expense company it was doomed in Personal Lines except it’s high valued homeowners program. Commercial Lines were largely doomed strategically by its high expenses and basic risk aversion. I was shocked that it too Allianz so long to figure out that FF was strategically screwed with mediocre, unimaginative, management coupled with high expenses competing with lower cost and more strategically focused competitors. I couldn’t figure out why Alianz couldn’t grasp the obvious so concluded that the Germans weren’t as smart as I had previously thought. They must have been dazzled by FF PowerPoint presentations that I often regarded as cleverly deceptive and obfuscated the underlying strategic and performance weakness.

There were also a few significant short sighted decisions made that helped deteriorate the once great company. Outsourcing in 2005. The IT department went from thousands of competent developers to putting out fires and no growth. Then came a huge unsuccessful IT project where very expensive vendors tried to create what the in-house talent could have done with high quality and much faster. Just my observations…

I was with FF for 17 years and spent 10 in the Comml Division. My take was that Allianz was only interested in increasing revenues(growth) and not into taking any risks to improve profits. Somewhere around 1999, the 3 business segments were asked to return a breakeven financial plan with full details on the strategy to get there. 2 of the segments (mine included) required a drastic reduction in policies (bad business, bad industries, etc.) in order to keep only the best risks and to maximize profitability. All of our plans were accepted by CID and taken to Germany to be presented to Allianz. Came back a week later with this message: throw out your plans and bring back another that shows at least a 5% growth in premium. Easy enough to do….just had to commit to losing millions more….sad.

M.J.Mason. I am a former Firemans Fund employee of 28 years that retired in 1998, several years after Allianz took control. I just received a notice from Allianz that my retiree life insurance of $5,000 will no longer be active after December 31st 2016. What will Allianz take away next…my retirement from MetLife?

I worked at FFIC for 25 years. The article was insightful; however, FFIC downsized and laid off employees for 35 years (not the 10 years cited by the author), following the failed plan to double market share. Management churned at all levels. Each round of new management cited market withdrawals and staff reductions as progress on goals. This became FFIC’s business model. Allianz couldn’t change it. Herbert Hansmeyer pleaded in 1992, “You’re running all the business off the books. STOP!” But, FFIC had become so internally focused, we could never restore reputation/relationships.

Your email address will not be published. Required fields are marked *

Comment

Name *

Email *

Website

Save my name, email, and website in this browser for the next time I comment.

ORDER BOB MacDONALD’S LATEST BOOK

If history has taught us anything it is this: Progress or perish. Make history or you are history. Gone. Maybe even forgotten.
This was true of the great empires. They all learned, for better or sometimes worse, that individuals and institutions can make prodigious contributions to history by shaping the future, but when they failed to continue to make history, they became history: We know them now for what they did, not what they are doing.

ABOUT BOB MacDONALD

Founder of LifeUSA Insurance and retired CEO of Allianz Life, N.A., Bob MacDonald regularly blogs with timely, hard-hitting comments on almost every business subject from entrepreneurism to better management, smart business leadership, government and politics, and of course, the life insurance industry.

Hey! Did You Miss These Hot Blog Subjects?

Bob MacDonald, founder of LifeUSA Insurance and retired CEO of Allianz Life, N.A., regularly blogs with timely, hard-hitting comments on almost every business subject from entrepreneurism to better
management, smart business leadership, government and politics, and of course, the life insurance industry.